Luxembourg law on State guarantee for bank loans21/04/2020

The Luxembourg Parliament recently adopted a new law establishing a guarantee regime in favour of the economy within the framework of the COVID-19 pandemic.

On 18 April 2020, the Luxembourg Parliament has adopted a new law establishing a guarantee regime in favour of the Luxembourg economy within the framework of the COVID-19 pandemic (the Guarantee Regime Law).

Pursuant to the Guarantee Regime Law, guarantees may be issued and managed by the Treasury of State which will be vested with the necessary legal power:

within the limit of an aggregate budget of EUR 2.5 billion;

on new loans granted by credit institutions between 18 March 2020 and 31 December 2020 having a maturity of maximum 6 years that will be guaranteed at 85% by the State and 15% by the participating credit institutions;

to Luxembourg companies, legal or natural persons that were viable before 18 March 2020 but that are facing temporary financial difficulties due to the COVID-19 crisis (excluding real estate and holding companies and companies that were in difficulty before 1st January 2020);

subject to the adoption a final decision from the European Commission declaring these guarantees compatible with the internal market and conditions fixed by an agreement with the credit institutions concerned; and

the maximum amount of eligible loans must not exceed 25% of the beneficiary entity's turnover for the year 2019 (or failing that, the last year available).

The benefiting borrower will have to pay a guarantee premium on the State guarantee that is a variable rate that will increase proportionally to the size of the company and the maturity of the loan.

Furthermore, the scheme is not mandatory for Luxembourg credit institutions that are required to enter into specific agreements with the State Treasury in case they want to participate to it. The participating credit institution will then have to notify each loan concerned by the State guarantee through an automated computer system in order to benefit from the guarantee.

The Guarantee Regime Law that has entered into force on 18 April 2020, shall facilitate the granting of loans by credit institutions to support the companies affected by the consequences of the COVID-19 outbreak, and prevent that temporary financial difficulties caused by the crisis impair the permanence of employment and economic activity.